The impact of institutional quality on the attractiveness of foreign direct investment in Africa

Abstract

The objective of this document is to emphasize the attractiveness of African countries of foreign direct investment which can be linked to macroeconomic variables traditionally analyzed and confirmed, but also to other recent variables relating to the political climate linked to development of the institutional economy. The analysis of this attractiveness and its characteristics show the weak influence of these institutional determinants on FDI inflows, this negative influence which is in contradiction with recent studies and the theoretical contribution whose impact is positive. It seems that the unfavorable business climate encourages this attractiveness. The results confirm the positive impact of the exchange rate, the degree of openness and the size of the market on FDI inflows. In particular, the institutional quality, through political stability, voice and responsibility, and the quality of the regulator have a negative impact on improving the attractiveness of African countries in terms of FDI. While other institutional variables are not significant, such as the efficiency of government, the control of corruption and the role of the law.

From the perspective of the foreign investor, most African countries present gigantic obstacles to investment, notably: corruption and cumbersome democracy, weak judicial systems, insufficient infrastructure, shortage of manpower. skilled labor and fears of political instability. To reduce corruption and bureaucracy and improve the image of these countries, specialized centers must be set up where investors can obtain all the necessary licenses and other authorizations, instead of having to face a multitude of administrative obstacles. time and allow local officials to demand bribes or other personal benefits. In addition, political instability and the various conflicts and violence that are found in many African countries discourage FDI inflows. Even countries far from conflict zones are not spared this negative image. Political stability and the absence of violence is one of the first determinants if we want to make these countries a more attractive pole of investment in the long term. Similarly, the legal, regulatory and legal framework of the country is essential in the establishment of companies which seem necessary to reform: company law, labor law, environmental law, regulation of public procurement and its accessibility to companies with foreign capital and the functioning of the judicial system.

keywords: obstacles, conflict, business, legal, judiciary.